Dell Reports Third Quarter Financial Results

GAAP earnings of $0.27 per share, non-GAAP earnings of $0.39 per share

Cash flow from operations of $1.3 billion

Dell Enterprise Solutions and Services revenue grew 3 percent year over year to $4.8 billion

Dell announced fiscal 2013 third-quarter results today with revenue of $13.7 billion, GAAP operating income of $589 million, and GAAP earnings of $0.27 per share. Dell’s enterprise solution strategy continued to show positive results with server and networking revenue increasing 11 percent year over year.

“We are consistently executing our end-to-end solutions strategy for the benefit of our customers,” said Michael Dell, Chairman and CEO. “In the quarter, we completed the acquisition of Quest Software which – along with other recent acquisitions like SonicWALL and Wyse – adds leading management, security, virtualization and cloud capabilities to our expanding portfolio of powerful solutions.”

“In a difficult global IT spending environment we saw solid proof points that demonstrate progress in our strategy,” said Brian Gladden, Dell CFO. “A highlight has been the strong progress of our newly introduced servers, with our server and networking business up 11 percent. We’re also encouraged by early interest in our new Windows 8 touch portfolio and the opportunities it creates for our commercial and consumer businesses. ”

Mr. Gladden added that strong cash flow from operations generated over the past two years continued with $1.3 billion in the quarter and, combined with a strong cash position this fiscal year, helped enable Dell to invest in new capabilities and return almost $900 million year to date to shareholders through the company’s recently adopted dividend and share repurchases.

Results

Revenue in the quarter was $13.7 billion, an 11 percent decrease from the previous year as desktop and mobility revenue contracted.

GAAPoperating income for the quarter was $589 million, or 4.3 percent of revenue. Non-GAAP operating income was $886 million, or 6.5 percent of revenue.

GAAP earnings per share in the quarter was 27 cents, down 45 percent from the previous year; non-GAAP EPS was 39 cents, down 28 percent.

Cash flow from operations in the quarter was $1.3 billion. Dell ended the quarter with $14.2 billion in cash and investments.

Fiscal-Year 2013 Third Quarter and Year-to-Date Highlights

Third Quarter

Fiscal Year To Date

(in millions)

FY13

FY12

Change

FY13

FY12

Change

Revenue

$13,721

$15,365

(11%)

$42,626

$46,040

(7%)

Operating Income (GAAP)

$589

$1,142

(48%)

$2,314

$3,500

(34%)

Net Income (GAAP)

$475

$893

(47%)

$1,842

$2,728

(32%)

EPS (GAAP)

$0.27

$0.49

(45%)

$1.05

$1.46

(28%)

Operating Income (non-GAAP)

$886

$1,288

(31%)

$3,019

$3,992

(24%)

Net Income (non-GAAP)

$679

$983

(31%)

$2,315

$3,039

(24%)

EPS (non-GAAP)

$0.39

$0.54

(28%)

$1.32

$1.62

(19%)

Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.

Strategic Highlights:

Dell Enterprise Solutions and Services revenue grew 3 percent year over year to $4.8 billion. The company year to date is 4 percent ahead of last year’s ES&S revenue at $14.2 billion, accounting for greater than 50 percent of the company’s gross margin thus far this year. The ES&S business is on an annual run-rate approaching $20 billion.

Server and networking revenue for the quarter grew 11 percent. Dell was the only top-3 server provider to have positive unit growth in the quarter. Dell’s server growth was driven by its new, 12th-Generation line, leadership in hyper-scale infrastructure solutions and an increase in customer adoption of cloud solutions for their IT requirements. Dell’s differentiated intellectual property and solutions have resulted in solid growth in this business.

Dell’s Servicesbusiness continues to execute well, with gross margin percentages improving sequentially for the sixth consecutive quarter, as the company focuses on the most profitable areas of the business. Growth in support, deployment and security services highlighted the quarter.

Business Units and Regions:

Large Enterprise revenuewas $4.2 billionin the quarter, an 8 percent decline. Operating income was $325 million, or 7.8 percent of revenue.

Public revenue was $3.8 billion, an 11 percent decrease. O perating income for the quarter was $352 million, or 9.2 percent of revenue.

Small and Medium Business revenue was $3.3 billion, a 1 percent decline. Operating income was $349 million, or 10.6 percent of revenue.

Consumer revenue was $2.5 billion, a 23 percent decline. Operating loss was $65 million or minus 2.7 percent of revenue.

Revenue in Americas was down 9 percent; Asia-Pacific and Japan was down 11 percent; and EMEA was down 15 percent.

Company Outlook:

Dell sees the challenging global macro-economic environment continuing in the fourth quarter, which will continue to impact the company’s results. The company expects sequential revenue growth of 2 to 5 percent. For the full year, Dell maintains its expectation for at least $1.70 in earnings per share on a non-GAAP basis. Going forward, the company is committed to its end-to-end solutions strategy and creating value over the long term.

About Dell

Dell Inc. (NASDAQ: DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.dell.com. T he third-quarter a nalyst call with Michael Dell, chairman and CEO, Brian Gladden, CFO, and, Steve Felice, Chief Commercial Officer, will be webcast live today at 4 p.m. CST and archived at www.dell.com/investor. To monitor highlighted facts from the analyst call, follow on the Dell Investor Relations Twitter account at: http://twitter.com/dellshares or hashtag #DellEarnings. To communicate directly with Dell, go to www.dell.com/dellshares.

Segment Realignment:

In the first quarter of Fiscal 2013, Dell made certain segment realignments in order to conform to the way Dell internally manages segment performance. These realignments affected all of Dell's operating segments, but primarily consisted of the transfer of small office business customers from the Small and Medium Business segment to the Consumer Segment. Dell has recast prior period amounts to provide visibility and comparability. None of these changes impacts Dell's previously reported consolidated net revenue, gross margin, operating income, net income, or earnings per share.

Non-GAAP Financial Measures:

This press release includes information about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures.” Dell encourages investors to review the reconciliation in conjunction with Dell’s presentation of these non-GAAP financial measures.

Special Note on Forward Looking Statements:

Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, trends relating to macroeconomic challenges and the IT spending environment, effects of our acquisitions, our server business, our dividends and share repurchases, and consumer demand relating to Windows 8, as well as the financial guidance with respect to revenue and earnings per share) are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: intense competition; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; Dell’s ability to achieve favorable pricing from its vendors; weak global economic conditions and instability in financial markets; Dell’s ability to manage effectively the change involved in implementing strategic initiatives; successful implementation of Dell’s acquisition strategy; Dell’s cost-efficiency measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to deliver consistent quality products and services; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell’s sales channel partners; access to the capital markets by Dell or its customers; weak economic conditions and additional regulation affecting our financial services activities; counterparty default; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; loss of government contracts; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions; cyber-attacks or other data security breaches; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; Dell’s ability to attract, retain, and motivate key personnel; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended February 3, 2012. In particular, Dell’s expectations with regard to sequential revenue and earnings per share for the full fiscal year ending Feb. 1, 2013 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, that macroeconomic challenges do not materialize into more significant economic difficulties, no significant change in seasonality patterns, continued strength in server, storage and network products and continued geographic customer demand trends. Dell assumes no obligation to update its forward-looking statements.

Consolidated statements of income, financial position and cash flows and other financial data follow.Dell is a trademark of Dell Inc. Dell disclaims any proprietary interest in the marks and names of others.